Stepping up attempts to improve pension diversity

After a lega­cy of lim­it­ed racial diver­si­ty with­in the pen­sions indus­try, com­pa­ny pledges to increase rep­re­sen­ta­tion have risen up the agen­da after the killing of George Floyd and the Black Lives Mat­ter move­ment.

Just 7 per cent of the Pen­sions Regulator’s work­force declared they were from a Black, Asian or eth­nic minor­i­ty back­ground as of March 2020, which is sig­nif­i­cant­ly low­er than the 14.4 per cent of the UK pop­u­la­tion these com­mu­ni­ties make up.

The reg­u­la­tor now has a diver­si­ty and inclu­sion com­mit­tee and chief exec­u­tive Charles Coun­sell has pledged “to encour­age, sup­port and, in some cas­es, cajole the organ­i­sa­tions we reg­u­late to bet­ter embrace the need for diver­si­ty and inclu­sion par­tic­u­lar­ly on trustee boards”.

As well as being the right thing to do and bet­ter reflect­ing cus­tomer bases, research shows tak­ing action on this has finan­cial ben­e­fits. Accord­ing to a report by McK­in­sey, com­pa­nies in the top quar­tile for eth­nic and cul­tur­al diver­si­ty are 36 per cent more like­ly to out­per­form their peers in prof­itabil­i­ty.

Efforts to improve workforce racial diversity

San­dra Kerr, race equal­i­ty direc­tor at Busi­ness in the Com­mu­ni­ty, sug­gests pen­sion com­pa­nies should mon­i­tor all stages of recruit­ment to see where inter­ven­tions, such as pre-appli­ca­tion days and diver­si­fied pan­els, need to be made.

It is also impor­tant, par­tic­u­lar­ly where there are no role mod­els in senior posi­tions, to pro­vide a trans­par­ent career path for pro­gres­sion and oppor­tu­ni­ties for shad­ow­ing exec­u­tives “so when the doors are open, you have peo­ple with the exper­tise and who are board ready”, she says.

A num­ber of cross-firm schemes, includ­ing Class­room to Board­room and the Cat­a­lyst After School Pro­gram, have been set up to try and devel­op a diverse pipeline into the pen­sions indus­try. Fol­low­ing the huge suc­cess of the #100BlackInterns ini­tia­tive, which start­ed with the pen­sion and asset man­age­ment indus­try, the 2021 sum­mer pro­gramme has been quick­ly expand­ed to help 10,000 Black interns over a five-year peri­od.

Pen­sion provider Avi­va is one of the par­tic­i­pants and also runs both its own eth­nic minor­i­ty lead­er­ship pro­gramme for employ­ees and the Ori­gins intern pro­gramme to sup­port younger gen­er­a­tions from minor­i­ty back­grounds. The com­pa­ny launched a Black Lives Mat­ter Action Plan in Sep­tem­ber 2020, work­ing with experts from each mar­ket to localise this. 

Sabi­na Khanom, Aviva’s head of inclu­sion, says: “For such inter­nal ini­tia­tives and intern­ship schemes to suc­ceed, they must have a clear pur­pose, resources and buy-in from the busi­ness areas and lead­ers.”

It is cru­cial staff at all lev­els active­ly engage to ensure pro­duc­tive out­comes. Sachin Bha­tia, co-lead of the Diver­si­ty Project’s new­ly cre­at­ed race and eth­nic­i­ty work­stream, believes interns should meet senior exec­u­tives and rotate around depart­ments so more employ­ees can see the added val­ue of util­is­ing a dif­fer­ent tal­ent pool. “You get a bet­ter idea of how diver­si­ty can impact your firm,” he says.

How­ev­er, such schemes must also be accom­pa­nied by increased rep­re­sen­ta­tion at the top and changes across the entire organ­i­sa­tion to effec­tive­ly make a dif­fer­ence. Raj Tul­siani, chief exec­u­tive of Green Park and co-founder of Race Equal­i­ty Mat­ters, warns: “For some it’s going to do absolute­ly noth­ing long term unless they’re giv­en roles, and then there’s a cul­ture and sys­temic approach to devel­op­ment that allows them to get for­ward on: a true even play­ing field.”

Diversity as an international investing lens

There is a grow­ing trend for US pub­lic pen­sion funds to use diver­si­ty cri­te­ria as part of due dili­gence. New York City comp­trol­ler Scott Stringer, for exam­ple, has asked for details of work­force, lead­er­ship and board com­po­si­tion, and allo­cat­ed specif­i­cal­ly to emerg­ing man­agers and minor­i­ty-owned busi­ness­es.

Bha­tia, who is also head of UK core insti­tu­tion­al and con­sul­tants at Invesco, says the UK, Europe, Mid­dle East and Africa are now also mov­ing in this direc­tion. “What we need to see is a greater effort of cap­tur­ing that data and some uni­for­mi­ty across firms of how that’s pre­sent­ed,” he says.

Asset own­ers can there­fore poten­tial­ly demand racial diver­si­ty in oth­er employ­ers by using it as invest­ing cri­te­ria, but should not wait for the com­ple­tion of col­lec­tion to tack­le the industry’s racial diver­si­ty prob­lem.

How­ev­er, there does now appear to be a more wide­spread inten­tion to address this issue and the first steps are being tak­en. “I do think we’ll see some tan­gi­ble change over the com­ing years,” says Bha­tia.

#10,000Blackinterns

Daw­id Konotey-Ahu­lu is a cham­pi­on for diver­si­ty and inclu­sion in the pen­sion indus­try as the co-founder of a num­ber of grass­roots ini­tia­tives, such as #10000BlackInterns, which he believes have a chance of mov­ing the dial. “I think we’re poten­tial­ly see­ing some real change and real impact in quite a short peri­od of time, which is very excit­ing,” he says.

Over the past few years, more young peo­ple have reached out to ask Konotey-Ahu­lu, who is the co-founder of Red­ing­ton and mal­low­street, for advice about nav­i­gat­ing the indus­try because they do not feel like they belong or are able to progress in it. His ini­tia­tive #Talk­A­bout­Black iden­ti­fied only 13 Black port­fo­lio man­agers in UK asset man­age­ment.

How­ev­er, Konotey-Ahu­lu is opti­mistic the next decade will see pen­sion com­pa­nies address­ing their own cul­ture and more Black peo­ple in mid­dle-man­age­ment roles mov­ing up with the belief they could become the chief exec­u­tive. His pos­i­tive out­look is based on the val­ues of the new gen­er­a­tion com­ing through and firms begin­ning to look at the S in ESG (envi­ron­men­tal, social and gov­er­nance). 

He thinks the lack of racial diver­si­ty has not pre­vi­ous­ly been tack­led because of the “cog­ni­tive dis­so­nance” of chief exec­u­tives, in which sole­ly com­mer­cial met­rics were used to mea­sure suc­cess. “You have to care about belong­ing as much as you care about the bot­tom line and about your share price,” he says. 

Konotey-Ahu­lu has been involved in recent exec­u­tive and all-staff com­pa­ny calls about diver­si­ty. He says: “If you’re pre­pared to have that kind of con­ver­sa­tion, do some­thing about con­cerns raised and hold your­self account­able, then I think change starts to hap­pen.” 

For the pen­sion indus­try to increase rep­re­sen­ta­tion, Konotey-Ahu­lu con­cludes, chief exec­u­tives must not side­line the issue to human resources and busi­ness­es should active­ly seek out future Black tal­ent by telling school­child­ren there is a seat for them in the future.